Demonetisation to slow down PC, phone sales in Q4: IDC

Sales of mobile phones in the quarter ending December will see a sharp sequential decline, with featurephones set to face the steepest drop of 24.6 per cent and a 17.5 per cent fall expected for smartphones.Gulveen Aulakh | ET Bureau | November 26, 2016, 07:01 IST

NEW DELHI: The government’s decision to demonetise Rs 1,000 and Rs 500 notes, which account for more than two-third of the cash supply, will lead to immediate but temporary contraction in the mobile phone, tablet and PC market in the October-December quarter, analysts at International Data Corporation (IDC) said Friday.

Sales of mobile phones in the quarter ending December will see a sharp sequential decline, with featurephones set to face the steepest drop of 24.6 per cent and a 17.5 per cent fall expected for smartphones.

“Cyclically, consumer purchases see a slowdown post the festival season in India. However, this year with the demonetisation process underway, the sequential decline is likely to be higher owing to the cash crunch the country has been facing since the second week of November,” said Jaipal Singh, Market Analyst, Client Devices, IDC India.

“This has already resulted in significant slowdown of demand across PC and mobile devices; not just in offline retail but in online channel as well, where cash-on-delivery contributes to a substantial portion of the sales,” he added.

The overall mobile phone market will face a drop in sales of about 4.5 per cent, compared to the July-September quarter when 32.3 million smartphone and 39.9 million feature phones were shipped.

Demonetisation will be a further blow to the industry in the October-December quarter where shipments typically fall on-quarter, post shipments for festive season, analysts at IDC said.

Since cash is the dominant mode of transaction in the devices market, as it enables quick transaction turnaround thus providing much needed liquidity for maintaining the demand and supply mix in the devices business, the impact on mobile phones will be felt more than on many other consumer goods.

“Although the early indications of October shipments were healthy, due to relatively poor sales in November, the inventory in channel is piling up which could take some time to liquidate as the cash deficit reduces,” IDC analysts said.

They, however, expect the impact to be temporary, and believe shipments will revive to normal run-rate mid-Feb to March. The channel inventory health is also likely to improve alongside, during this time.

Considering the seasonal decline and impact of demonetization, tablet shipments are also expected to sharply decline sequentially by 23 per cent in December ending quarter, from 1.06 million units shipped in September quarter.

Lower cash velocity is forcing consumers to postpone their discretionary purchases, and since more than half of PC buying - from retail and exclusive stores - is done through cash in India, demonetisation should further bring down the consumer market by 33 per cent, Manish Yadav, associate research manager, client devices, IDC India said.

In terms of market locations, the impact on demonetisation is more prominent in small cities and towns, where retail shops transact more in cash and penetration of digital payments has yet to reach the levels seen in bigger cities.

“To tackle the after-effects of demonetisation, distributors are increasing the credit cycle to retailers. Also, both retailers and brands have started offering more lucrative offers to try to offset the sluggish demand from cash-crunch-hit consumers,” said Upasana Joshi, Senior Market Analyst, IDC India.

With reduced cash transactions, there is a surge in demand of alternative forms of payment.